Human Resources Committee on Feb. 17th, 2015

[Siobhan Harty]

Yes. We've seen in other social impact bonds that it varies. We've seen different models, depending on the country. In the U.K., the U.K. government didn't get involved with a third party organization to collect some data related to the Peterborough pilot, but we've seen variations in the U.S. and Australia. In the U.S., there are third party evaluation processes involving organizations, and they do some of the data collection. I think it will vary, depending on what that landscape looks like in a particular country, whether there are foundations in place that can do it or intermediaries. In some cases universities have been involved because they already have that strong capacity from a quantitative perspective. Again, it's that partnership model. You leverage what's there to be able to do it.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Wouldn't governments be heavily involved in collecting data? In my community of Kingston, for homelessness in particular, I know there was a city-wide organized effort to actually, on a given day, count the homeless population, which involved a lot of people. It was a big effort. I believe the idea was to provide a baseline for the homeless population. In Canada, we also have Statistics Canada, which is heavily involved and has a lot of expertise in collecting data.

Would you say that Statistics Canada and other levels of government would be involved in that data collection effort?

[Siobhan Harty]

If it was appropriate, but it really depends on what kind of data you want to collect. Statistics Canada does a lot of survey work and that might or might not be appropriate for a local level intervention that is working across multiple policy areas. It might work, and it might not work, but you might want to have community health centres involved or local not-for-profit organizations that are involved in the intervention.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay.

Our federal government has been talking about this for a couple of years now, and I realize these things can take time to implement, but since the government has been talking about it for a couple of years, what are the major barriers that you see to implementing social finance in Canada? What work remains to be done?

[Siobhan Harty]

I don't think there are major barriers. If you go back to the slide on the market, I think that like any market you have to move forward all components at the same time, and that means engaging with all players and all players have to be interested and willing. I think it's just a timing issue to move them forward.

I pointed to some things the government has done in different departments. In my department we're looking at introducing different social innovation components into our programs. We have been doing that already for the last couple of years by using federal dollars to leverage private sector contributions to many of our grants and contributions programs. We are also doing something that is testing elements of a social impact bond in the area of literacy and essential skills. This is something that my previous minister announced in October 2013.

There are projects happening in my department and others as well. We're taking an incremental approach in Canada and looking at pilots. I think that's the appropriate approach to take as we look to see what's going on in other countries and what lessons we can learn.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

What are the risks that you see in social finance? In particular, we're involving the private sector. We're applying a financial model for privatizing some of the funding. What are the risks in applying this model to the delivery of where you have to have measurable outcomes and you don't always have a nice metric to measure what you want to do, as you well know, and there's profit as a motive here? What are the risks that you see that this committee might have to pay attention to?

[The Chair, Conservative, Phil McColeman]

Ms. Harty, I'm going to ask you to hold the answer, please, as we are over time on seven minutes for this round. Perhaps that could be answered in another round. It's a valid question and I'd like to hear the answer myself.

The last person on the first round is Mr. Butt.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Thank you, Ms. Harty and Mr. McMurren, for being here. I'm particularly excited about this study. I was one of the proponents for this. We need to find out more about what is going on. We need to find out more about what the department is doing to support these kinds of things across the country.

I think we're all familiar in our individual ridings of some wonderful projects that are being done that we are particularly proud of. I was delighted to hear you mention the homelessness partnering strategy, because prior to getting elected to Parliament, in my previous life I was the president of the Greater Toronto Apartment Association. Our organization played a major role in the success of that program in the city of Toronto, particularly through the streets to homes program. We were actually able to see some marvellous results without a huge bureaucracy and Statistics Canada giving us the results. We actually saw the direct results on the ground. I'm particularly pleased. I think that's an excellent example of how social enterprise and social finance can work in a city that's dealing with homelessness as a tremendous issue. I'm delighted to hear that's one of the poster children of success for this kind of project that we are looking at as a committee.

I want to talk a bit about financing. I served on the special committee that looked at cooperatives in Canada. One of the issues that we dealt with as an all-party committee was the general misunderstanding of how cooperatives worked and therefore how they were able to access financing and funding. I realize social enterprise is a little bit different from co-ops, but is that one of our major challenges in convincing lending organizations, financing organizations, groups on the ground that want to put the partnership together to create social finance, that people just don't understand exactly how these things work?

Can you talk about that a little bit? How do we do a better job of talking about the benefits of social finance and making sure that the financing authorities, the Business Development Bank of Canada, perhaps, EDC, and some other government authorities as well as traditional financing, our banks, trust companies, and credit unions might play a role and better understand what social finance is?

[Siobhan Harty]

Sure. It would be my pleasure.

You're right that traditionally social enterprises have a hard time accessing capital in our country, but it's not just in our country. I think that's because we've had a traditional view of that sector as being not-for-profit. Of course, it's important to note that it falls under certain legislation; that's important to keep in mind as you as a committee look at this going forward.

Fundamentally, the business model is not one that is readily understood by traditional financial institutions. Many social enterprises in our country employ vulnerable populations who would not be employed by regular businesses. They play a very important role from a social and labour market perspective because they integrate certain vulnerable populations into the labour market who otherwise would be unemployed and perhaps living on social assistance. They play a fundamental role. In order for them to get recognized as such, though, and to be able to access capital, they find it challenging. To be able to grow their business model, they come up against roadblocks. Traditional banks will not lend to them, so the main option for them has been grants. It would be hard to grow a business on a grant; I think so. To be able to access other streams of money in order to grow their business, it has not been possible outside of certain financial institutions. Co-op banks are a good example. Vancity in Vancouver, British Columbia, is an example of an organization, a cooperative bank, that is willing to lend to these kinds of organizations. At almost the other end of the country, in Quebec, we also have cooperatives and banks, Desjardins being one, which are willing to lend to these kinds of organizations. They don't view it as a risk necessarily.

For more financial institutions to get on board, two things have to happen. Social enterprises would have to be able to develop a business case that is understandable to traditional financial institutions, but those institutions will need to meet them halfway as well and recognize that the risk is not what they perceive in terms of investing in social enterprises. There is data to show that the bankruptcy rate for social enterprises is lower than for small and medium-sized enterprises. They do have a good business model. They are not necessarily a risky venture. That needs to be communicated to financial institutions to be able to access supplies of capital.

At the same time, banks, I think, are being pressured in different ways that are important; that is, some Canadians would like to make investments that return on both a social and financial front. Increasingly, banks are looking at their products and asking whether there's a way they can create vehicles for Canadian investors, whether they're high net worth individuals or people who want to invest in their RRSPs in different ways, and be able to achieve that.

I think if both of those things happen, they will open up the supply of capital into really important ways for social enterprises in Canada.

[The Chair, Conservative, Phil McColeman]

One minute.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Okay.

Do you have any other recommendations of things which at the federal government level we could be doing or looking at? Would they be changes to the Income Tax Act or corporate tax, or some other tax credit provisions, or whatever it is? The good thing about this study is that I think we've decided as a committee that this is kind of wide open: we want to learn as much as we can and look at any opportunities there might be on the table.

Is that part of it, or are most of these successful ones just happening because they're happening and it's not because government is providing tax money on the table or a tax credit or whatever? Perhaps you could talk to that just very quickly, before the chairman cuts me off.

[Siobhan Harty]

Quickly, I imagine you'll hear from different witnesses who will tell you that there are some challenges in the current legal and regulatory environment. I think they'll be better placed than I am to explain those from a practitioner's perspective. But that is certainly something we hear.

I would just note that when I talked about the G-7 task force report, the Canadian one—I'll send you the link—was produced by a group of Canadians from different sectors, including financial. They do talk about some of the issues you've raised. If some of those people appear before you as witnesses, I think you'll be able to get a good overview as well as a technical assessment of what some of those challenges are.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Thank you.

[The Chair, Conservative, Phil McColeman]

We'll now move to our five-minute rounds.

Madam Hughes.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Mr. Chair, for the response to Mr. Hsu's question a while ago, I would ask that she table it. I think it's important that we get as much information as we can.

I have a couple of questions. First of all, is there a budget set aside for this when we're looking at the overall transition that's actually happening?

[Siobhan Harty]

Do you mean a budget in the Government of Canada or just generally?

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Well, for this specific area. As you know, there's a budget for every department and a budget for every program, so I'm wondering if there's a specific amount of money that's set aside for this.

[Siobhan Harty]

No. I work in a policy area, not in a program area, so I do not have a dedicated budget to look at this. This is part of ongoing work, because I work in social policy generally, so I'm interested in different innovative approaches.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Okay. You're actually looking at it, but as they're looking at implementing....

[Siobhan Harty]

Yes. When I—

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Are we still just at that initial phase?

[Siobhan Harty]

In the work I do on the policy side, I look at a range of approaches. If you recall, I said that this is one additional tool in the tool kit. Anytime that I'm asked by my minister to provide advice on something that could be done to address a social challenge, I look at a range of instruments that could be used, whether it's the tax system or other things. This is one more instrument that I can look at.

From a program perspective, as I mentioned, some of our programs are already looking at whether it's possible to introduce social innovation into their call for proposals. That is being done in the department and has been ongoing for several years. It's not social finance specifically; it's more about leveraging additional funding from private foundations, for instance, to be able to support further interventions.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Thank you.

In May 2013, the then minister of HRSDC presented a report entitled “Harnessing the power of social finance: Canadians respond to the National Call for Concepts for Social Finance”. The minister wrote in the introduction to the report that “over 150 submissions” were “received from across the country”, which were addressing “key priorities for Canada’s long-term prosperity”. When we look at it, we see that only 15 of the submissions made it, so that's about 10%. I'm just wondering, because it seems a bit low, if you could explain to us why it was was only 10%, and whether it actually reflected the whole of what was actually presented.

[Siobhan Harty]

You're right: just over 150 concepts were received over several months from across the country. What we did in the report is just profile some of them. None of them were funded. We were interested in getting a sense of whether Canadians had a familiarity with social finance and whether they had some ideas about innovative approaches that could be used in the context of social and labour market interventions at the local level. When we produced the report, we tried to get a good cross-section of what those concepts were and to give them some profile in the report.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Another question I have is with respect to the social impact bond. I'm wondering what happens after the bond. Does the project simply end? Is there a reissuance or a new bond formed, or does the government take up the project and make it a public program?